SAP - A Humble Giant From The Reality Land? Part 3: Market Impact

During its international e-business conference, SAPPHIRE, on June
12-15, SAP AG (NYSE: SAP), the leading provider of business software
solutions, released a spate of upbeat announcements in its effort to portray
itself as a reformed vendor of choice for all aspects of e-Business, including
planning and collaboration. As an illustration thereof, SAP cited that
its flagship mySAP.com suite has met with remarkable success in
the market. SAP reached a major milestone in 2000 when the number of licensed
users of its mySAP.com platform reached 1 million. Since then, more than
3 million additional users have reportedly licensed mySAP.com.

About
This Note: This is a five-part note covering the announcements at
the SAPPHIRE conference, the market impact of those announcements, the
challenges SAP faces, and user recommendations. Part Five will contain
links to the previous parts.

Market
Impact

SAP has exhibited an amazing ability to gradually change, while remaining
with both feet on the ground and somehow keeping up with the trends. It
is no longer the heavy SAP from a few years ago, although it continues
to be a stalwart behemoth. The company has broken away from its traditional
unitary ERP mindset and is moving in a direction to penetrate most of
the prospective markets in the realm of e-Business. To that end, SAP's
strategy to un-bundle itself into disparate centers of excellence was
with the aim to become more efficient and competitive. SAP AG, SAPMarkets
and the recently announced SAPPortals reflect the approach
to build upon SAP's recent open integration strategy to rapidly exploit
new technologies for current and future customers. Each entity has the
respective expertise and lead responsibility for sales and development
of mySAP.com components, exchanges and portals. The desired effect should
be the improvement of time-to-market for new solutions.

Moreover,
SAP has even abandoned its proverbial stubborn policy of only developing
functionally superior software in-house. To that end, SAP has become more
focused on partnerships and working with other vendors that specialize
in e-business software. The recent partnerships with Yahoo! and
the partnership with IBM (see Part One) along with recently reinforced
wedding vows with Commerce One speak in that regard, while the portals
OEM alliances with its fierce enemies might have left some speechless.
We believe the alliance with IBM has a true mutual potential. Training
thousands of IBM consultants on the mySAP.com suite should tremendously
speed up its adoption.

Since
SAP's most recent focus is on new sexy application areas such as CRM,
PLM and SCM, it needs plausible implementation partners to succeed, and
it is difficult to think of any more appropriate partner in that regard
than IBM GS. Also, IBM's decision to license and integrate SAP's enterprise
portal technology for use with IBM's WebSpherePortalServer
considerably fortifies the new SAP Portals business. On the other hand,
SAP will make expanded use of the IBM WebSphere Application Server within
its MarketSet development. IBM hopes to increase the use of DB2
and WebSphere via partnerships to primarily compete against Microsoft
and Oracle. Also, one should not neglect IBM GS' opportunity for providing
consulting, implementation and outsourcing services around mySAP.com.

Consequently,
at SAPPHIRE user conference, SAP articulated a sound e-business strategy,
which is also quite ambitious and will have to be substantiated in the
forthcoming period though. Its product's componentization, openness and
outward-looking strategy should be appealing to both current and potential
users nonetheless. SAP's alleged humility and non-insistence on locking
customers into its technology would virtually leave Oracle as the only
apparent proponent of the 'one-stop shop' mantra.

Being
Open and Flexible Pays Off

One can wonder what stands behind SAP's decision to be more open and flexible
though - a sudden epiphany of being unable to be all things to all people
or some deeper reasons? Whatever the case may be, the decision was wise
and pragmatic. As an illustration, TEC recently facilitated an ERP software
selection for a division of a large global corporation with over 50 divisions
using a plethora of diverse ERP packages (over 30 different packages deployed
worldwide, with the 'winning' vendor having 4 instances of its product
within the corporation). The chances of any single vendor succeeding in
swaying the corporate management to adopt its product as a corporate-wide
standard, even if that product should be a good fit everywhere, are very
slim. However, linking these disparate systems through portals and private
exchanges, would not be a far-fetched idea. That is where SAP can obtain
a significant portion of new business, on top of being able to participate
in any other software applications selection corporate wide, which would
also be with less scope and much simpler owing to the possibility of selecting
only a pertinent applications component.

SAP
Is More Competitive

Furthermore, we believe SAP now can afford to compete on a component per
component basis, having basically reached its limit in capturing most
of large customers in the market with an integrated product suite. The
SAP R/3 product suite has long been one of the strongest in terms of feature-function
for most of vertical industries as well as for horizontal administrative
applications.

Where
SAP has traditionally lagged though, was the simplicity of implementation
and users training partly owing to deep intricacies and interdependencies
of modules within R/3. The somewhat facetious comments that SAP R/3 has
been more complicated than the US Tax code have not been that far from
the truth. By breaking up the huge monolithic R/3 into a subset of mySAP.com
components, SAP should be able to more quickly fix or add new functionality
independently of other pieces. And once any applications vendor has established
component architecture, it becomes easier and safer for IT departments
to customize the system.

Additionally,
componentization proves to be crucial to enable ERP systems to support
e-business activity since the new e-commerce capabilities are being delivered
as individual components. Componentization also helps the vendors extend
the core ERP system with SCM, CRM, and other collaboration solutions.
Also, componentization would not only make it easier for the SAP to enhance
mySAP.com but also make it easier for customers to upgrade the software.
With componentization, a customer could incrementally upgrade only selected
components without having to upgrade the entire solution, which usually
would entail a colossal effort.

Big
bang implementations are becoming a matter of past and have often been
cited as the main reasons of large implementations fiascos. Users are
also becoming savvier and are able to discern when Toyota's functionality
and price would suffice instead of opting for unneeded, complicated and
expensive Cadillac's features. All the above reasons indicate SAP's increased
competitiveness in the lower and medium end of the market in the future.

This
concludes Part Three of a five-part note on recent developments covered
by the SAPPHIRE e-business conference. Part
One covered Alliances and Partnerships. Part
Two covered SAPs expanding functionality. Part Three discussed the
Market Impact. Part Four will discuss SAP's strategy.